Those who make hay while the sun shines are meant to be an example to those who sit back and do little. On that basis, stock exchanges are proving to be fine role models.

Faced with competition in traditional trading activities, Europe’s largest bourses are reaping the rewards from their last few pockets of dominance while they can.

Nowhere is this better illustrated than in the provision of market data.

Across Europe’s largest exchanges – including the London Stock Exchange, Deutsche Börse and Nasdaq OMX – market data revenues have grown by almost a third over the past four years, according to research by Financial News.

Despite sluggish trading volumes, selling data is now worth combined fees of about €1bn to these groups.

The LSE has been the standout performer: its data revenues have more than doubled over the last four years, to £180m in the year ending March 31, 2011, representing almost a third of its total income.

Against this backdrop, there is debate over whether exchanges have displayed a shrewd commercial instinct in the provision of their data services, or are exploiting monopolistic positions.

What is certain is the ire felt by brokers and buyside trading desks towards their data costs, and the fact that alternative venues are eyeing opportunities in data in much the same way as they have in trading.

Whalley, by virtue of his board role at the recently merged alternative trading venue Bats Chi-X Europe, sits in the middle of the debate.

The efforts of Bats, Chi-X Europe and other venues – which were born out of competition-inducing rules in 2007 – have halved the LSE’s share of trading in FTSE 100 stocks in a little over three years. It is a trend playing out across Europe’s largest exchanges.

Despite this decline in market share, exchanges remain the primary source of market data, including real-time prices and historical information, and continue to charge a lot for it. In contrast, alternative venues have provided their data for free while they built up liquidity.

Whalley said: “The exchanges charge a ridiculously high amount for what is, in many cases, a rapidly diminishing view of the total market.”

The exchanges see it differently. They attribute increasing revenues to the fact that their data covers the widest range of stocks (Bats only offers trading, and therefore data, in the most liquid stocks) and the in-depth nature of the information they provide.

There is also a view that the growing influence of high-frequency trading firms on European markets – which now account for as much as 60% of activity, according to analysts – has increased the demand for information: high-frequency trading firms employ highly quantitative strategies.

David Lester, director of information services at the LSE, said: “In today’s modern trading and investment environment the need for accurate, fast and reliable information has never been greater.”

However, the dominant position of exchanges’ data franchises could be under threat. Bats Chi-X Europe has begun charging some vendors for redistributing its data, according to sources.

Bats declined to comment. This revenue stream will become increasingly important as the group, which floated last week, faces the same commercial pressures as other exchanges.

Market participants have welcomed the move as a source of pressure on exchange fees. But the incumbents remain unperturbed. Werner Bürki, chief executive of the Swiss exchange’s data service, SIX Exfeed, said: “It reaffirms our model that high quality, reliable and real-time data is a valuable good.”

Moreover, it does not remove the fact that brokers need to source data from every venue to secure the best prices for their clients.

Andrew Bowley, a managing director in Nomura’s equities business, said: “We need to know where the liquidity is, so we must get data from each venue. That means exchanges can charge rates unaffected by competition.”

Structural issues

There is a widespread belief that regulation over data pricing is essential. In a revised version of its trading rulebook, the markets in financial instruments directive, the EU has raised the possibility of competing trading feeds known as a consolidated tape.

Common in the US, these feeds would comprise data from all trading venues and be disseminated by multiple providers on a “reasonable commercial basis”. Whalley said a consolidated tape was “the only solution”.

However, structural problems as simple as the use of common messaging standards, as well as lobbying efforts by those with vested interests, could derail efforts to create competition in the short term.

Niki Beattie, chief executive of consultancy Market Structure Partners, said: “I’m a strong believer in competition, but it is a complete fallacy that we will ever have competition in market data.

There are so many infrastructure and regulatory issues to deal with that the incumbent exchanges will continue to exploit their monopoly on market data for some time to come.”